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De-merit goods - should the government toughen gambling laws?

Graham Watson

29th March 2023

I've been looking at demerit goods with my Year 12 classes this week, and we've touched on the negative externalities that are generated by problem gambling. This Rob Davies article is an interesting read in that it highlights the problems of both self-regulation, and regulation itself.

Please read Why won’t the Gambling Commission suspend licences of firms that break rules? Rob Davies (Guardian)

To what extent should governments intervene in this market? What is the optimal level of gambling? What it the optimal level of intervention? To what extent is government intervention likely to generate government failure? There's lots to think about and many different ways to apply the marginal principle.

What are de-merit goods?

In economics, a de-merit good is a good or service whose consumption is considered unhealthy, degrading, or otherwise socially undesirable due to the perceived negative effects on the consumers themselves. It could be over-consumed if left to market forces.

De-merit goods typically have negative externalities, which are costs that are not borne by the consumers of the good. For example, the consumption of alcohol can lead to drunk driving, which can harm other people. The consumption of tobacco can lead to secondhand smoke, which can harm other people.

Governments often intervene in the market for de-merit goods by imposing taxes or regulations on their consumption. For example, governments often levy taxes on alcohol and tobacco. Governments may also regulate the advertising of de-merit goods. For example, governments may ban the advertising of alcohol and tobacco to children.

The goal of government intervention in the market for de-merit goods is to reduce the consumption of these goods. This can be done by making them more expensive or by making them less convenient to obtain.

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Graham Watson

Graham Watson has taught Economics for over twenty years. He contributes to tutor2u, reads voraciously and is interested in all aspects of Teaching and Learning.

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